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The Tax Cuts And Jobs Act Reduces Tax Burdens For The Middle Class

- November 7, 2017

Democrats Are Desperate To Paint The GOP Tax Bill As Bad For The Middle-Class But In Reality, It Reduces Their Tax Burden And Eliminates Deductions That Favor The Wealthy

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TOP TAKEAWAYS

  • Republicans unveiled their tax legislation Thursday hoping to capitalize on a once-in-a-generation opportunity to clean up an "inefficient, loophole-cluttered tax code."
  • Under current law, a family making $60,000 a year with two children would pay a total income tax of $1,608; under the House plan the same family would pay a total income tax of $472, saving them $1,136.
  • Under the Republican proposal, families with two children will not have to pay taxes on the first $55,667 of income they earn.
  • A Tax Foundation study found the Republican tax bill would create almost a million new jobs, and increase after tax incomes by 4.4 percent.
  • The Republican tax bill eliminates numerous costly deductions and tax loopholes that primarily benefit wealthy Americans.

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REPUBLICANS RELEASED THEIR HIGHLY-ANTICIPATED TAX BILL THURSDAY

Republicans Released Their Tax Bill Thursday, Taking A Once-In-A-Generation Shot At Reforming The Broken Tax Code

House Republicans Released Their Tax Relief Bill Last Thursday, Largely In Line With The Framework President Trump And Republicans Set Forth In September. "House Republicans released major tax legislation Thursday after long months of negotiations and a few short days of frantic reworking, beginning the GOP attempt to hurry a bill to President Trump's desk by the end of the year. The roughly 400-page bill, the Tax Cuts and Jobs Act, largely hews to the framework for lowering tax rates that Trump and Republicans laid out in September." (Joseph Lawler, "GOP Unveils Bill To End 'America's Broken Tax Code,'" Washington Examiner , 11/2/17)

The Republican Tax Legislation Is A Once In A Generation Opportunity To Clean Up An "Inefficient, Loophole-Cluttered Tax Code." "The legislation would fulfill a longstanding goal for Capitol Hill Republicans who see a once-in-a-generation opportunity to clean up an inefficient, loophole-cluttered tax code." ("Republicans Formally Roll Out Tax Plan -- Live Updates," Associated Press , 11/2/17)

REPUBLICAN REFORMS TO THE TAX CODE WILL EASE THE TAX BURDEN FOR MIDDLE-CLASS AMERICANS

The Republican Tax Bill Eases The Tax Burden Of Middle- And Low-Income Americans

The Republican Tax Bill Contains "Substantial" Breaks For Low- And Middle-Income Americans . "It's a substantial break for those who aren't rich, and that's confirmed by the Washington Post fact checkers, who gave four Pinocchios to Democratic claims the plan raised the burden on the middle class while benefiting the wealthy." (Editorial, "Editorial: Tax Plan Meets Nation's Needs," The Detroit News , 11/4/17)

In The Bill, The Standard Deduction Is Almost Doubled To $12,000 For Individuals, And $24,000 For Married Filers. "To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would increase to $12,000 for individuals (up from $6,350) and $24,000 for married couples (up from $12,700). These are slightly less than the doubled deductions expected." (Bob Bryan, "The GOP Finally Unveiled Its Massive Tax Plan That Proposes A Sweeping Overhaul To The System," Business Insider , 11/2/17)

  • The Increase Of The Standard Deduction Could "Potentially Pu[t] Thousands Of Dollars Each Year Into The Pockets Of Tens Of Millions Of Americans." "President Trump on Wednesday plans to call for a significant increase in the standard deduction people can claim on their tax returns, potentially putting thousands of dollars each year into the pockets of tens of millions of Americans, according to two people briefed on the plan." (Damian Paletta and Steven Mufson, "Trump To Propose Large Increase In Deductions Americans Can Claim On Their Taxes," The Washington Post , 4/25/17)
  • The Approximately 70 Percent Of Americans Who Currently Take The Standard Deduction, Mostly Low And Moderate Income Taxpayers, Would Stand To Benefit. "About 70% of Americans, mostly low- to moderate-income, currently take the standard deduction and would benefit, Viard says. Many of the remaining 30% who itemize, largely higher income households, would likely switch to the standard deduction, leaving only about 5% itemizing, he says." (Paul Davidson, "How Trump's Tax Plan Would Affect Households," USA Today , 4/26/17)

The Bill Would Increase The Size Of The Child Tax Credit To $1,600 Per Child, And Adds A $300 Credit For Each Non-Child Dependent. "Increase in the size of the child tax credit. A pet project of Ivanka Trump, the proposal is to increase the credit to $1,600 from $1,000. The bill would also add a credit of $300 for each non-child dependent or parent for five years, after which that provision would expire" (Bob Bryan, "The GOP Finally Unveiled Its Massive Tax Plan That Proposes A Sweeping Overhaul To The System," Business Insider , 11/2/17)

  • Research From The Center On Budget And Policy Priorities Suggests The Child Tax Credit Leads To Improved Educational Outcomes For Young Children Living In Low-Income Households. "Moreover, research suggests that income from the EITC and CTC leads to improved educational outcomes for young children in low-income households. For each $1,000 increase in annual income over two to five years, children's school performance improves on a variety of measures, including academic test scores. A credit that's worth about $3,000 (in 2005 dollars) during a child's early years may boost his or her achievement by the equivalent of about two extra months of schooling." (Chuck Marr, Chye-Ching Huang, Arloc Sherman, and Brandon Debot, "EITC And Child Tax Credit Promote Work, Reduce Poverty, And Support Children's Development, Research Finds," Center On Budget And Policy Priorities , 10/1/15)
  • The Child Tax Credit Combined With Other Refundable Credits Lifted 8.2 Million Americans Out Of Poverty In 2016 According To The U.S. Census Bureau Report On Poverty. "The CTC and EITC have also done exactly what they were intended to do: lift millions of people out of poverty. The latest report on poverty in America from the U.S. Census Bureau came out last week. It showed that refundable tax credits lifted 8.2 million Americans out of poverty in 2016, making the credits the second-best poverty reduction program in the United States after only Social Security." (Heather Long, "The Simple Way To Tell Whether Trump's Tax Plan Is For The 'Little Guy' Or The 1 Percent," The Washington Post , 9/19/17)

The Bill Lowers Tax Rates For Many Middle Class Americans. " The 35 percent rate would cover some affluent households currently paying a marginal rate of 33 percent, potentially raising their taxes; and the 12 percent bracket would extend into the income range currently covered by the 25 percent bracket, lowering taxes for many middle- and upper-middle-class households." (Dylan Matthews, "The House Republican Tax Bill, Explained," Vox , 11/2/17)

  • The Bill Benefits Middle-Class Earners Because The New Bottom Rate Covers More Income Than The Two Lowest Brackets Under The Current Plan, Meaning Lower Taxes For Many Middle-Income Families. "The new bottom tax rate covers more income than the current 10% and 15% brackets do, meaning lower taxes for many middle-income households. But many upper-income households could face a higher marginal tax rate under the House bill, which pushes some from a 33% bracket into 35%. Whether they see actual tax increases would depends on particulars, and full estimates aren't available yet." (Richard Rubin, "Republicans Stick With Big Corporate Tax Cuts In House Bill," The Wall Street Journal , 11/2/17)
  • Under Current Law, A Family Making $60,000 A Year With Two Children Would Pay A Total Income Tax Of $1,608, But Under The House Plan The Same Family Would Pay A Total Income Tax Of $472, Saving Them $1,136. "Under current law, in 2018, a married couple with two children making $60,000 would get a $13,000 standard deduction and four personal exemptions each worth $4,150. That means they would pay taxes on $30,400 of taxable income. Their base tax bill of $3,608 would be reduced by $2,000 in child tax credits for a total income tax of $1,608. Under the House plan, the same married couple with two children would get $3,800 in tax credits, $3,200 for the two children and $600 for the two parents. The same family would get a $24,400 standard deduction but no exemptions, for $35,600 of taxable income. Their base tax bill of $4,272 would be reduced by the $3,800 in credits for a total income tax of $472." (Richard Rubin, "Republicans Stick With Big Corporate Tax Cuts In House Bill," The Wall Street Journal , 11/2/17)
  • As The National Taxpayers Union Points Out, A Family Of Four Won't Pay Taxes On The First $55,667 Of Income Under The Republican Plan. "Doubled standard deduction, expanded child credit & new family tax credit = family of 4 won't face taxes on first $55,667 of income." (National Taxpayers Union, Twitter Feed , 11/2/17)
  • The Preservation Of The Top Individual Rate Indicates That Republicans Are Focused On Tax Cuts For Middle-Class Americans. "The retention of the 39.6% individual tax rate marks a shift in the way Republicans think about tax policy. For years, they had focused on driving down that top tax rate. President Trump says he is instead focused on middle-income cuts and large changes to the business tax code, which he argues will boost growth and hiring." (Richard Rubin, Jon Hilsenrath, and Kathryn Tam, "What The Republican Tax Plan Means For You," The Wall Street Journal , 11/2/17)

The Bill's Tax Cuts And Pro-Growth Policies Would Have A Positive Impact On After Tax Income For Middle-Income Families

The Tax Foundation's Study Found That The Republican Tax Bill Would Create Almost A Million New Jobs, And Increase After Tax Incomes By 4.4 Percent. "Indeed, the TAG model estimates that the plan would result in the creation of roughly 975,000 new full-time equivalent jobs, while increasing after-tax incomes by 4.4 percent in the long run. The increase in family incomes is the result of both the income tax cuts and the broader rise in productivity and wages due to economic growth. These estimates take into account all aspects of the Tax Cuts and Jobs Act, including changes to the individual and corporate tax codes." (Nicole Kaeding, Morgan Scarboro, and Scott A. Hodge, "The Tax Cuts And Jobs Act: The Impacts On Jobs And Incomes By State," Tax Foundation , 11/3/17)

The Estimated Gain In After Tax Income For A Middle-Income Family If The GOP Bill Passes Is $2,598. (Nicole Kaeding, Morgan Scarboro, and Scott A. Hodge, "The Tax Cuts And Jobs Act: The Impacts On Jobs And Incomes By State," Tax Foundation , 11/3/17)

THE TAX BILL'S ELIMINATION OF COMPLICATED AND COSTLY DEDUCTIONS THAT PRIMARILY BENEFIT WEALTHY AMERICANS MAKES THE TAX CODE FAIRER

The Bill Shifts To A Larger Standard Deduction While Eliminating Itemized Deductions That Primarily Benefit The Wealthy

The Republican Tax Cut Bill Gets Rid Of Many Itemized Deductions In Favor Of A Larger Standard Deduction. "The legislation is the most sweeping overhaul of the tax code in 30 years, pushing down both corporate and some individual tax rates, while doing away with many itemized write-offs used by Americans to lower their tax bills in favor of a bigger lump-sum standard deduction." (Lisa Mascaro, "House Republicans Produced An Ambitious Tax Overhaul, But Now The Hard Work Begins," Los Angeles Times , 11/3/17)

  • Raising The Standard Deductions And Eliminating Itemized Deductions Will Make Tax Preparation Easier. "'This combination of raising the standard deduction and eliminating itemized deductions will make tax preparation easier, but I'm not sure it will be a savings for higher income people,' said Tim Steffen, director of advanced planning at Robert W. Baird & Co. in Milwaukee." (Darla Mercado, "The Good, The Bad And The Money: Here's What The GOP Tax Bill Means For You," CNBC , 11/4/17)

The Bill Eliminates Deductions For Executive Compensation Above $1 Million. "The bill eliminates other deductions, including the ability of businesses to deduct certain executive compensation above $1 million, which they can now take for performance-based pay." (Richard Rubin, "House GOP Tax Plan Sticks With Big Corporate Cuts," The Wall Street Journal , 11/2/17)

This Bill Does Away With Deductions For Banks Worth More Than $50 Billion On Payments To The FDIC. "Banks with assets exceeding $50 billion would get no deduction for certain payments to the Federal Deposit Insurance Corporation." (Richard Rubin, "House GOP Tax Plan Sticks With Big Corporate Cuts," The Wall Street Journal , 11/2/17)

The Bill Prohibits Professional Sports Teams From Using Tax-Exempt Bonds To Build Their Stadiums. "Tax-exempt bonds could no longer be used to build professional sports stadiums. Private universities with assets exceeding $100,000 a student would pay a new 1.4% excise tax on their net investment income. Businesses would no longer be able to deduct entertainment expenses, though today's rules for business meals would remain." (Richard Rubin, "House GOP Tax Plan Sticks With Big Corporate Cuts," The Wall Street Journal , 11/2/17)

Under The Republican Tax Bill, The Mortgage Interest Deduction Has Been Capped For Wealthy Homeowners, And The Bill No Longer Allows Filers To Receive Benefits On Multiple Homes

Under Current Law, Americans Can Deduct Interest Payments On Their First $1 Million Worth Of Home Loans, The House GOP Bill Reduces That Cap To Homeowners First $500,000 Worth Of Loans. "Under current tax law, Americans can deduct interest payments made on their first $1 million worth of home loans. The bill would allow existing mortgages to keep the current rules, but for new mortgages, home buyers would be able to deduct interest payments made only on their first $500,000 worth of loans." (Damian Paletta And Mike Debonis, "GOP Tax Plan Would Shrink Mortgage Interest Benefit, Slash Corporate Tax Rate," The Washington Post , 11/2/17)

  • 90 Percent Of Americans Who Use The Mortgage Interest Deduction Make More Than $100,000 A Year. "Consider that almost 90 percent of the Americans who use the mortgage interest deduction, (MID), make $100,000 or more per year. And the value of the deduction rises with the cost of your mortgage, which encourages people to buy more expensive homes and speculate wildly on real estate in general." (Jake Novak, "GOP Tax Bill Is A Big Improvement," CNBC , 11/2/17)
  • The Mortgage Deduction Will Also Be Limited To One Residence, So The Wealthy Can No Longer Receive Tax Benefits From A Second Home. "Also limits the mortgage deduction to 'principal residence.' I.e. no more deduction for second homes." (Scott Greenberg, Twitter Feed , 11/2/17)

 


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